Earlier this week, the Justice Department seized http://Backpage.com, the Internet’s leading forum for prostitution ads, including ads depicting the prostitution of children, and the unsealing of a 93-count federal indictment against seven Backpage principals. Backpage’s co-founder and CEO, Carl Ferrer, 57, of Frisco, Texas, has pleaded guilty to conspiracy to facilitate prostitution using a facility in interstate or foreign commerce and to engage in money laundering. Additionally, several Backpage-related corporate entities, including Backpage.com LLC, have entered guilty pleas to conspiracy to engage in money laundering.

According to the factual basis of his plea agreement, Ferrer admitted that he had long been aware that the great majority of Backpage’s “escort” and “adult” advertisements are, in fact, advertisements for prostitution services, which are not protected by the First Amendment and which are illegal in 49 states and in much of Nevada. Ferrer further admitted that he conspired with other Backpage principals to find ways to knowingly facilitate the state-law prostitution crimes being committed by Backpage’s customers. For example, he worked with his co-conspirators to create “moderation” processes through which Backpage would remove terms and pictures that were particularly indicative of prostitution and then publish a revised version of the ad. Ferrer admitted that these editing practices were only one component of an overall, company-wide culture and policy of concealing and refusing to officially acknowledge the true nature of the services being offered in Backpage’s “escort” and “adult” ads.

In the factual basis of his plea agreement, Ferrer also admitted that he conspired with other Backpage principals to engage in various money laundering offenses. According to the factual basis, since 2004, Backpage has earned hundreds of millions of dollars in revenue from publishing “escort” and “adult” ads. Over time, many banks, credit card companies, and other financial institutions refused to do business with Backpage due to the illegal nature of its business. In response, Ferrer admitted that he worked with his co-conspirators to find ways to fool credit card companies into believing that Backpage-associated charges were being incurred on different websites, to route Backpage-related payments and proceeds through bank accounts held in the name of seemingly unconnected entities, and to use cryptocurrency-processing companies for similar purposes.

Ferrer’s plea agreement also requires him to take all steps within his power to immediately shut down the Backpage website, including providing technical assistance to the United States to effectuate the shutdown, and to take all steps within his power to forfeit to the United States all corporate assets and other property owned or controlled by various Backpage-related entities. The plea agreement provides that, if Ferrer fails to comply with either of these requirements, the plea agreement shall be null and void and the United States may bring additional charges against Ferrer. Ferrer’s plea agreement, and the corporate plea agreements, also consent to the forfeiture of certain assets and items of property, including various domain names associated with the Backpage website.

The seven defendants charged in the 93-count indictment were all arrested on Friday, April 6. They are Michael Lacey, 69, of Paradise Valley, Arizona; James Larkin, 68, of Paradise Valley, Arizona; Scott Spear, 67, of Scottsdale, Arizona; John E. “Jed” Brunst, 66, of Phoenix, Arizona; Daniel Hyer, 49, of Dallas, Texas; Andrew Padilla, 45, of Plano, Texas; and Jaala Joye Vaught, 37, of Addison, Texas. On April 6, Vaught had her initial court appearance before U.S. Magistrate Judge Eileen Willett of the District of Arizona and was released from custody pending trial. Lacey, who also had his initial court appearance on April 6 before Judge Willett, subsequently had a detention hearing on April 11 before U.S. Magistrate Judge Bridget S. Bade of the District of Arizona and was ordered to temporarily remain in custody until his continued hearing on Friday, April 13. On April 9, Larkin, Spear, and Brunst had their initial court appearances before Judge Bade. Larkin has since been ordered to temporarily remain in custody until a continued detention hearing on Monday, April 16, and Spear and Brunst were released from custody pending trial. Also on April 9, Hyer had his initial court appearance before U.S. Magistrate Judge David L. Horan in the Northern District of Texas and was released from custody pending trial, and Padilla had his initial court appearance before U.S. Magistrate Judge Christine A. Nowak in the Eastern District of Texas and was released from custody pending trial.
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